The 2-year Treasury yield fell the most in a month after cooler-than-expected November CPI data

By Vivien Lou Chen and Jamie Chisholm

Government bond yields fell, led by 2- and 3-year rates after November’s CPI report prompted a modest rise in inflation and raised hopes that the worst streak of price gains in four decades is over.

What happened

What drives the markets

The US CPI report for November released on Tuesday showed that the annual headline inflation rate fell to 7.1% from 7.7% in the previous month, marking the lowest level since the end of 2021. Economists were counting for the full year Full-year CPI growth, which hit a four-decade peak of 9.1% in June, slipped to 7.3% last month.

On a monthly basis, the cost of living rose just under 0.1% in November, the latest in a string of mild numbers suggesting the worst spell of US inflation in 40 years is easing. Economists polled by the Wall Street Journal had forecast a 0.3% rise in the CPI.

November CPI data confirmed the likelihood that the policy-making Federal Open Market Committee will hike rates by 50 basis points to a range of 4.25% to 4.50% on Wednesday, according to the CME FedWatch tool. Additionally, the odds of a smaller 25 basis point hike in February rose to 52.5% from 35.1% a day earlier, according to 30-day Fed Funds futures. Read: Why November’s US CPI data is seen as a ‘game changer’ for financial markets

Benchmark Bund yields fell 1.7 basis points to 1.923% after a report showed German inflation slipped from a more than 70-year high in November. In the UK, the 10-year gilt yield BX:TMBMKGB-10Y rose 9.6 basis points to 3.296% after data showed unemployment rose in November but wage growth accelerated. The European Central Bank and Bank of England both forecast that they will raise interest rates by 50 basis points on Thursday.

What Analysts Say

“Today’s November CPI release should give the FOMC breathing room as we move into 2023,” said Tim Magnusson, chief investment officer of Minnesota-based Garda Capital Partners, which raised more than $8 billion in November -dollar managed.

“Energy inflation is easing while services inflation appears to be holding up,” he wrote in an email to MarketWatch. “After four straight hikes of 75 basis points and another 50 basis point hike likely to come tomorrow, we believe the Fed is no longer behind the curve in its inflation fight.”

-Vivien Lou Chen

(ENDS) Dow Jones Newswires

12/13/22 1546ET

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